Kuwait contracts need to evolve

In his first dispatch from the northern Gulf, Mohammed Azad Hossain, deputy head of contracts, Gulf Consult, calls for an overhaul of local procurement documents.

By Azad Hossain

Sat 08 Sep 2007 04:00 AM

Gulf countries are in the grip of a major construction boom since the emergence of a new millennium, and the Kuwait construction market regained its pace in 2003. Record oil prices continue to underpin the booming real estate sector in Kuwait, while significant investment is also proposed in oil and gas. But the growth rate is still less in comparison to other GCC countries. Recently, the Kuwait government made some landmark decisions, which created a strong demand to boost the country's construction market. It is expected that growth in Kuwait, in the coming years, will follow a similar pattern to Dubai.

However, there are some major challenges facing the Kuwait construction industry that must be addressed. It is a concern that construction practices in Kuwait have fallen behind those of other GCC countries. This is relatively true in respect of both design and documentation practice, where there is a need for more clarity in contract documentation. On many contracts it is apparent that Kuwait's tendered costs of construction are cheaper than other Gulf states, but the amount of variations and claims can lift the final delivery cost above those of adjacent countries.

The main causes of these variations and claims can often be related to the poor design drawings and lack of clarity of contract documents. Lack of attention in the quality and completeness of the contract documents increase the potential risks, which are ultimately transferred to the contractor.

The contractor, who generally gets a shorter tender period and is overburdened with the work of its tendering department, pays less attention to the tender documents and eventually comes up with either an un-workable tender figure or with an exorbitantly high price.

But exceptions do exist - there are well coordinated contract documents as well as quality oriented firms.

Most of the employers, especially in the public sector, are interested in the ‘all inclusive' fixed lump sum and cheapest offer, and expect the contract will run without any variations and claims. A client expects its project to function properly and be completed on time - it is not greatly interested to know about day-to-day problems.

Studies reveal that US and UK practices and standards form the basis of construction practice in the Gulf. However, each Gulf country has developed its own construction practices in slightly different ways - Saudi Arabia is more US-oriented, the UAE, Bahrain and Qatar are more UK oriented, whereas Kuwait is somewhere between the two. Notwithstanding this, the process of importing two established practices, systems and standards, which in many ways are incompatible, has resulted in confusion in the construction practice of those countries. This is most evident in Kuwait whose construction industry has more readily tried to combine and transpose the different practices, systems and standards of both the UK and US. The result is a variety of procurement methods, forms of contract, management techniques and specifications that are cumbersome to operate and cause problems for all the parties of the construction contracts.

The Middle East supports the FIDIC Contract and it is widely used. The second edition of FIDIC, published in July 1969 - a very old contract, which has become so outdated that it has been dramatically redrafted in the third edition published in March 1977 - is a big improvement over the second, but it does not go far enough. The fourth edition was published in 1987 and subsequently emerged as an overhauled version in 1999 - a completely new suite of FIDIC contracts. Though other GCC countries are using mostly the fourth edition and 1999 versions of FIDIC, Kuwait is still lagging behind and using the second version. The Ministry of Public Works in Kuwait operates the General Conditions of Contract, both in Arabic and English, which is a modified version of the old 1969 FIDIC - widely used in Kuwait and often disputed.

Kuwait is also using US-based specifications ‘CSI-16 Division MasterFormat', tailored by individuals to suit the Kuwait Construction environment, which are often misleading and confusing. The Bill of Quantities (BoQ) is prepared in the same format of CSI without incorporating proper (Standard) Methods of Measurement. And with a project being a lump sum fixed-price contract, any discrepancy in the BoQ and drawings transferred to contractor's account, often lead to dispute.

Most of the other GCC countries have different sets of specifications predominantly based on British system. Principle of Measurement International (POMI) for Building Works and CESMM3 for Civil Engineering Works are widely used to prepare the BoQ. POMI and CESMM3 have their own standard methods of measurement and the contract is administered accordingly.

In the face of this confusion, it would seem that there could be two alternative solutions to this problem: either stick to ‘only one set of practices, systems and standards' or ‘establish a clear set of practices, systems and standards specific to the particular country'.

But an extension of this, however, could be a common and integrated set of "practice documentations" specifically for all GCC countries, representing most similar markets in terms of development, climate, social and environmental factors, which can be prepared in joint collaboration under the GCC Charter.